Technical Analysis – Gold takes a time-out after new high

Anthony Charalambous, XM Investment Research Desk

The yellow metal clocked a new 6 ½-year high of 1555.10 on August 26 and then pushed into a transition period for around a week with upper and lower boundaries around 1547 and 1516 respectively. It’s worth mentioning that the Bollinger bands are also squeezed in this short-term pause in direction.

The MACD and the RSI suggest that negative momentum has started to increase. The MACD currently beneath its red trigger line, has declined into the negative zone, while the RSI deflected off the 50-level, is descending in the bearish territory. The upward slope in the 50- and 100-period simple moving averages (SMAs) continue to feed the bullish move in the bigger picture.

If the price jumps above the mid-Bollinger band and the previous high of 1534.91, the upper-Bollinger band presently at 1547 could provide some downside pressure before the high of 1555.10 comes into view. If the bulls manage to restart another rally, the April 2013 high of 1590.16 could unfold after a violation of the 1577 resistance.

To the downside, fracturing the support region of 1520-1515, where the 50-, 100-period SMAs and the lower-Bollinger band all reside, the metal may retest the 1492 support. Breaching the 1487 level too, which is the 23.6% Fibonacci retracement level of the up leg from 1266.20 to 1555.10, the market could see additional losses until the inside swing high of July 19 of 1453.

Overall, a break above 1547 or below 1516 could reveal the directional bias.